Stephen Bainbridge's Journal of Law, Politics, and Culture

03/03/2015

Reuters profiles serial shareholder litigant Hilary Kramer whose many lawsuits have netted shareholders zero--as in nothing, nada, zilch--but her lawyers "got a payout for every settlement. Firms representing all plaintiffs involved in class actions in which Kramer has a leading role have earned at least $14 million, Reuters calculates. That figure does not include fees in seven cases for which records are not available and four cases for which fees have yet to be awarded."

Keith Paul Bishop has the details on their critique of the SEC's reversal of position in the Whole Foods shareholder fight:

... a coalition of some 17 different organizations ... denounced the SEC’s “abrupt” change of course “at the height of the shareholder proposal season on the eve of a three day holiday weekend”. In particular, the coalition decried the “opaque process by which this sudden shift in policy was decided and communicated”.

There is no doubt, moreover, that the coalition’s criticism was aimed directly at the Chairman White:

More troubling still, it also appears that this fundamental change in policy was made without any apparent consideration by, or formal vote of, the other four SEC commissioners. The announcement was simply a pair of statements by the Chair and the Division, not as action by the full Commission. We believe policy changes of this magnitude should only be made in a formal action by the full Commission.

02/28/2015

When I was in school at the University of Virginia, Dean Smith's University of North Carolina Tar Heels basketball team routinely thrashed my beloved Cavaliers. At the time, I blamed Smith's reliance on the evil four corners offense, perhaps the most despicably cowardly offensive scheme in the history of sports.

But it turns out there was another reason. He--and the rest of the UNC sports apparatus--Cheated.

In 2010 allegations of an utterly corrupt academic system for student-athletes emerged from the University of North Carolina at Chapel Hill campus, home of the legendary Tar Heels. As the alma mater of Michael Jordan, Larry Brown, Marion Jones, Lawrence Taylor, Rashad McCants, and many others; winner of forty national championships in six different sports; and a partner in one of the best rivalries in sports, UNC–Chapel Hill is a world-famous colossus of college athletics. In the wake of the Wainstein report, however, the fallout from this scandal—and the continuing spotlight on the failings of college athletics—has made the school ground zero in the debate about how the $16 billion college sports industry operates.

Written by UNC professor of history Jay Smith and UNC athletics department whistleblower Mary Willingham, Cheated exposes the fraudulent inner workings of this famous university. For decades these internal systems have allowed woefully underprepared basketball and football players to take fake courses and earn devalued degrees from one of the nation’s top universities while faculty and administrators looked the other way. In unbiased and carefully sourced detail, Cheated recounts the academic fraud in UNC’s athletics department, even as university leaders focused on minimizing the damage in order to keep the billion-dollar college sports revenue machine functioning. Smith and Willingham make an impassioned argument that the “student-athletes” in these programs are being cheated out of what, after all, is promised them in the first place: a college education.

02/27/2015

I was intrigued by another amicus brief filed on the defendants’ behalf. Not the brief by onetime SEC defendant and billionaire sports team owner Mark Cuban, but the one by three professors as famous in the securities law biz as Cuban is in the rest of the world. Stephen Bainbridge of UCLA, Jonathan Macey of Yale and Todd Henderson of the University of Chicago argued in a brief docketed Thursday that the 2nd Circuit panel in the Newman and Chiasson case was exactly right on what constitutes a personal benefit to a corporate insider. (As it happens, the same three, along with Allen Ferrell of Harvard, also filed an amicus brief backing Mark Cuban when the SEC appealed the dismissal of its case against him to the 5th Circuit.)

Wait one second. How come Macey and Henderson got bold typeface but not yours truly? (Update: The squeaky wheel gets the bold typeface.)

The professors said that despite the SEC’s arguments in Dirks for the prohibition of all trades based on material, non-public information, the Supreme Court concluded blanket insider trading rules would “ultimately damage the overall health of the market, because they limit the incentives of market participants to seek out information on which to trade.”

Instead, the professors’ brief said, the Supreme Court came up with the “personal benefit” test, which was supposed to draw an objective line between tips passed by a corporate insider with an improper motive and information provided innocently. The Dirks opinion did say that an insider’s improper purpose can be to enrich a friend, but, according to the securities professors, the court “was not endorsing the proposition that an insider who discloses inside information to a ‘friend’ is therefore seeking a personal benefit.”

... The professors contend that the government interpretation – which the Justice Department and the SEC want the 2nd Circuit to enshrine in a reconsideration of the Newman and Chiasson decision – would undermine the free-market policy concerns at the heart of Dirks. They urged the 2nd Circuit to deny the government’s petition.

Bainbridge said in an email that he’s done about 10 such amicus briefs in his 25-year career and that the Newman filing reflects views he has been espousing on his blog, ProfessorBainbridge.com, for about a year.

02/26/2015

UCLA Law Librarian Kevin Gerson sent along some thoughts in response to my post the other day on law libraries:

Here are a few thoughts on print resources in law libraries:

The operating budget of the W&L library is increasing by 2%, but that doesn’t mean that the library isn’t continuing to cut print resources. Most online database costs increase at rates of about 5-10% per year. A 2% budget increase will still require the cutting of print resources in order to maintain the digital resources. Most law libraries continue to add digital resources each year.

Perhaps surprisingly, some publishers require us to purchase the print in order to access the online version. Similarly, many publishers routinely increase the online resource costs when print subscriptions are discontinued.

It’s easy to find reports, mostly from firms, saying that print libraries are dead. However, the 2014 ABA Legal Technology Survey Report (of 75,000 attorneys in private practice) reports that 44% of attorneys regularly use print materials for legal research (up from 41% in the prior year). Only 3% never use print materials. On the other hand, 11% never use Westlaw or Lexis.

The Social Law Library pointed out in a recent annual report that: “It’s an inconvenient truth that books and other expensive legal materials continue to be essential to legal research. Not everything is published electronically, at least yet and not by a long shot. The implications for legal research are clear. While research on primary law (cases and statutes) constitutes the bulk of basic research and can now be largely conducted online, once legal questions become novel or complex, researchers must turn to expensive treatises and secondary sources that are still overwhelmingly paper-based.”

Digital resources, especially secondary sources in aggregated packages such as Lexis and Westlaw, are notoriously unstable in that the resources are frequently removed from the database without any notice. On the other hand, books are stable and self-preserving and can last for centuries with little attention.

Our faculty generally prefer reading monographs in a print format. Professor Naomi Baron, in her new book Words Onscreen: The Fate of Reading in a Digital World, found in a survey of university students a near-universal preference for print for serious reading. This preference for print for in-depth reading is elucidated in 2013 Scientific American review article (Jabr, Why the Brain Prefers Paper).

In our library, we can measure the use of our print collection by the number of books we return to the shelves each year. In the most recent year, we reshelved over 102,000 volumes, which is up from 97,000 in the prior year. In addition, we saw a 33% increase in the student use of our print reserve course materials.

Back in 2011 I got a request from the Chicago Law Review to referee an article for them, which sort of pissed me off. Today I got one from the Yale Law Journal:

I hope this note finds you well. I am an Articles Editor for Volume 125 of the Yale Law Journal, and I’m writing to see if you might be willing to serve as a referee for a paper we are considering for publication in the Journal.

Either the student-edited format makes sense or it doesn't. The whole purpose of peer review is to get students OUT of the process, not to supplement a decision that would remain in the hands of second and third year law students. A pure peer review/edit system has several advantages. First, more informed and experienced decision makers should make better decisions. Second, one key function of peer review is to provide expert advice at a stage at which the authors can still tweak the paper. Hence, the advice should go directly from the reviewer to the author, rather than being mediated through students. Third, making the decision dependent on peer review provides a strong incentive for authors to heed the advice and to improve the paper. Giving students final say means the author is incented to make the students editors happy rather than the more knowledgeable reviewer. Finally, leaving the final decision in the hands of students means that the reviewer has less incentive to provide his/her best analysis, since his recommendations presumably will not be conclusive and may not even impact the final product. The proposed Chicago system being neither fish nor fowl, there is no reason to think it will combine the best attributes of peer and student journals. To the contrary, for the reasons just noted, I suspect it will combine their worst.

Plus, there's this consideration:

By the way, speaking of my twenty-odd years in legal academics without a [Yale Law Journal] publication, if 20 years worth of [Yale] boards have rejected everything I've ever submitted to them, why does this board all of sudden think highly enough of my standing in the field to ask for a review? ... Shouldn't they be selecting people they've published? Or are they admitting that all those boards were wrong to reject all those articles of mine?

If my occasional rants amuse you, go read the whole 2011 post. I think it is one of my better rants.

02/19/2015

We're talking about work and labor in tonight's Catholic Social Thought and the Law seminar. One of the questions I posed to the students about the reading was:

Laborem Exercens suggests that it is through work that we realize our humanity. Laborem Exercens sees technology as an ally when it assists and augments work and improves its quality. Technology can become almost an enemy when the mechanization of work takes away all personal satisfaction and the incentive to creativity and responsibility. Discuss these two views of technology.

Several of the students had really interesting takes on the problem, but I was especially interested this observation from one of the students:

From a professional work point of view, the benefits of technology are even clearer. Doctors rely on ever-evolving technologies to improve their performance. A doctor is better able to provide accurate diagnoses with the aid of MRIs and biopsies, and certainly their patients are better off with improved technology.

Even lawyers are indisputably better off with technology. Research via Westlaw and Lexis is orders of magnitude faster and more comprehensive than paper research. Typing up briefs and memos on a PC (or even using speech recognition software) is much faster than writing by hand or using a typewriter. Without a doubt, technology increases a lawyer’s productivity. ...

We don’t really see technology taking away jobs in white-collar professions. To my knowledge, doctors were not laid off after the rise of MRI machines, nor was there a trend of lawyers losing their jobs when legal research moved online. Whatever costs imposed by technology in those fields are easily outweighed by the benefits to the workers and their customers – better medical treatment and presumably better legal representation.

I'm going to tackle that claim in the seminar tonight, because I think technology has played a major role in the legal profession's problems in recent years. John McGinnis has a very good analysis of this issue in a recent post:

The most important cause of the decline in demand for legal services is technological shock. Technological change has reduced the demand for lawyers, at least at the price point law schools were delivering it. The technological shock has been of two kinds. First, machine intelligence is beginning to substitute for lawyers, particularly at the low end of the legal profession. Document discovery is moving from human to machines. Legalzoom and similar services are encroaching on the production of simple documents, like many wills and trusts. And once machines get into an area, they dominate over time.

Second, machine intelligence is reducing the agency costs from which lawyers have benefited, General counsel, for instance, can keep better track of exactly what their outside counsel are doing, cutting down on slack. The information age reduces the information asymmetry between lawyers and many of their clients.

This technological shock has been good for the economy by reducing the transaction costs constituted by lawyers. But it raises a grave challenge to law schools. Since the cause of the decline in applications is structural, the applicants are not likely to come back in anything like previous numbers. Because the structural change is technological, it also may intensify as computation becomes ever more powerful. In a subsequent post, I will discuss how law schools can respond to these challenges.

My bottom line is that all of us who work are subject to technological shocks and that Catholic Social Thought provides a relevant framework from which to analyze appropriate societal responses.

Brian Leiter quotes a Washington & Lee announcement that the law school is undergoing major changes. They are slashing lots of stuff, but increasing the law library budget:

The current student-faculty ratio (9:1) will be preserved, but with smaller enrollments the allocation for faculty compensation will be reduced by about 20 percent (equivalent to six positions) and will be achieved through attrition over the four-year period. In addition, some senior faculty salaries will have a one-time salary reduction of 2 percent with salaries frozen for all faculty during the three-year period....

Operating budgets will be reduced by 10 percent in 2015-16 with the exception of the library budget, which will grow by 2 percent.

I know libraries face major budget pressures, especially with escalating journal subscription fees. But aren't law libraries also facing obsolescence? A Pacific Business Journal article reports:

Traditional libraries are becoming obsolete at some Hawaii law firms as technology and online access provide more efficient ways to keep up with legal issues.

But some firms say they’re not quite ready to toss away those big leather-bound books.

... Lexis and WestLaw, do provide most of the manuals needed by attorneys. And, they are more efficient to use, said Daniel Chen, a litigator with Rush Moore LLP, which recently converted from books to digital.

“We had a law library for a long time, but it was an expense to continue to update it,” Chen said. “Every year there are supplements you have to order for the books. Plus, with most of the manuals available online, you pay twice if you have the hard copy too.”

Goodsill Anderson Quinn & Stifel recently tossed its law library for the same reasons. Partner Randy Steverson, head of the firm’s technology committee, agreed with Chen that it didn’t make sense to continually update hard copies of manuals that are available online.

The once-busy Black Hawk County law library is being dismantled as the Internet provides information once available only in law books.

The library on the third floor of the courthouse used to be heavily used by judges and lawyers, but it’s now rarely used.

The Board of Supervisors voted last week to let the district court dispose of the law books and legal publications that fill high shelves. Officials are offering the books to the Waterloo Public Library, local governments and attorneys.

Ultimately, they could be given to recycling centers.

Assistant County Attorney Pete Burk says, “nobody wants them.”

UCLA's law library is fabulous and our reference librarians are a wonderful resource. But I haven't set foot in it for years. Almost of my research is done online, supplemented by office copies of a few books. If we got rid of the books tomorrow neither my teaching nor my research would take a major hit (probably not even a minor one).

Granted, the law school library can be a useful study hall for the students, but that doesn't mean that their budgets should be going up while everything else is getting slashed.

Efforts to encourage greater corporate board diversity are now nearly universal. Though different jurisdictions employ different methods – from reporting to quotas to more informal public, market, or government pressure – the drive to diversify the boardroom is being felt around the world. But why?

The Faculty Lounge will host a special mini-symposium on corporate board diversity with guest experts in the field. What methods are different jurisdictions using to promote board diversity and with what effect? More importantly, what do board diversity advocates hope to achieve with these changes? Finally, what do our panel of experts believe will be the ultimate result of these efforts?

Join us in the Lounge as our panel of experts address these and other issues on March 23-27.